Realty World – Elite Realty

Many renters debating whether to buy or rent their homes are realizing that the increase in affordability, coupled with low interest rates and tax incentives, are tipping the scales toward homeownership.
• An analysis of 45 metro areas by the Associated Press found that the gap between the monthly mortgage payment on a median-priced home and the median rent has decreased from $777 a month to just $221 in the past three years.
• In markets across the nation, including the inland areas of California, prices have declined by nearly 40 percent, resulting in rising sales as first-time buyers use a federal tax credit that covers 10 percent of the home price, up to $8,000.
• Favorably priced foreclosures in some markets are drawing multiple bids. Many housing experts believe that as supply and demand even out, home prices will eventually begin to rise, but for now most buyers are having little difficulty finding affordable homes.
• Qualified first-time buyers may be eligible for loans insured by the Veterans Administration (VA), which does not require a down payment. Another loan product gaining popularity are those insured by the Federal Housing Administration (FHA), which require only a down payment of 3.5 percent.
• It is important that potential home buyers not only look at the monthly mortgage payment compared with their monthly rent payment, but that they also consider other costs associated with homeownership. These can include homeowner association (HOA) fees, insurance, maintenance, and utilities, which most renters are not responsible for paying.

Homeowners who have accumulated negative equity and experienced a financial hardship may be candidates for a short sale, in which the lender takes a loss as part of the transaction in order to avoid a foreclosure.
The lender’s cooperation is key, and the need for that cooperation presents a way for the Realtors to provide a service to the seller and create a closed home-sale transaction, rather than walk away from a homeowner in such a situation.
Negative equity, sometimes referred to as being “upside-down,” occurs when a property’s market value is less than the outstanding debts and liens against the property plus the cost of selling the property, according to Sterling Watkins, broker/owner of Short Sales Services in Folsom, Calif. One way to broach the subject of a short sale is to ask to see a copy of the homeowner’s most recent loan statement. Homeowners who believe foreclosure is a cure for negative equity may be surprised to be told otherwise.
“The biggest misconception is that once the house goes away in foreclosure, the loans went with it. [The Realtors] has to explain that that’s not the way it is. [The homeowner] used the house for security for the debt and just because the security went away, doesn’t mean the debt went away,” he explains.
However, Realtors should be aware that the vast majority of foreclosures in California are foreclosures on a deed of trust, which do not allow the foreclosing lender to pursue the homeowner for any balance remaining on the foreclosing lender’s loan after the sale. Also, if a lender forecloses on a mortgage that was taken out by the homeowner to purchase his or her home (purchase money mortgage/deed of trust), the lender by law is not allowed to collect a deficiency judgment against the homeowner. Realtors should refer clients who have questions about whether they will owe money after a foreclosure sale to a knowledgeable specialist in this area as this can be a complicated question depending on the mortgage.
Lenders generally won’t countenance a short sale in the absence of financial hardship or if the homeowner is a candidate for forbearance or loan modification. Forbearance defers loan payments until the homeowner can recover from a temporary financial setback. Loan modification restructures the loan to enable the homeowner to make the payments, perhaps over a longer period of time. In such cases, the Realtor should refer the homeowner to the lender.
If the situation warrants a short sale, the Realtor should review the homeowner’s information before it’s submitted to the lender to make sure it presents a complete and accurate picture of the financial hardship.
The Realtor also should negotiate with the lender on the seller’s behalf, such negotiations require plenty of patience because banks “negotiate in a different fashion” than Realtors do. “They come back with a very hard-line approach to what they want.” Negotiations can be particularly difficult if a mortgage insurance company is involved as a “hidden third-party that influences the outcome”.
A short sale may involve adverse tax consequences for the home seller, though some exemptions may apply. Realtors should always refer home sellers to a competent accountant who can explain the tax effects of the short sale.

You’ve probably already considered your personal reasons for selling. Now you need to take into account the other factors involved, such as market conditions, your property’s value and tax implications. Unless you’re locked into selling your home (e.g., you’ve already accepted a job offer in another city), it’s a good idea to look at the whole picture before deciding to sell.
Assessing Market Conditions
There’s a rule of thumb to keep in mind when deciding to sell your home: Your home is only worth what a qualified buyer is willing to pay at the time it’s on the market. The current real estate market fluctuates based on supply and demand, interest rates, general economic conditions, and other factors. The same house may sell for more or less under a different economy. Realtors can inform you of the going price for homes in your area at the current time.
Tax Implications of Selling
There are many dynamics that can affect your tax liability upon selling your home. These issues include whether you purchased the home or inherited it, if you used your home for business or rental purposes, costs associated with selling your home, and any home improvements and additions that you’ve undertaken.
The Federal Taxpayer Relief Act of 1997 provides capital gains tax exclusions of up to $500,000 for married taxpayers filing jointly and $250,000 for single taxpayers or married taxpayers filing separately. Current capitol gains rates are 20 percent for those in upper tax brackets and 10 percent for those in lower tax brackets. Overall capital gains rates have been lowered even further — to 18 percent and 8 percent respectively — for assets acquired after December 31, 2000, and held five years or more.
To qualify for this tax break, you must have used the home as your primary residence for at least two of the prior five years; these two years don’t have to be consecutive. If you relocate for your job but don’t meet the requirement, you may be allowed to take a capital gains exclusion proportionate to your circumstances. This exclusion is not a one-time benefit; you may take advantage of it once every two years as long as you meet the qualifications.
The tax rules differ when you sell a home that you’ve inherited. If you sell the inherited home for a profit, you’re required to pay federal and state taxes on the gain. If you keep the house as a second residence and/or eventually move into it after renting it to tenants, you may take the $250,000/$500,000 capital gains tax exclusion if you meet the requirements. When you’re deciding what to do with inherited property, you should consider the current estate tax laws and basis practices.
Beyond these general rules, it’s wise to discuss your home’s sale with a tax professional who can advise you on tax benefits in more detail.
Timing Your Decision to Sell
Because most sellers finance a new home purchase with the sale of their present home, they usually put their homes on the market before they begin their search for a new home. Learning the price you can expect from the sale often sets the pricing parameters for your new home search.
Obviously, it’s not wise to wait until the sale on your property closes completely before beginning to look for your new home. Timing your search properly with the buyers’ transaction can make the difference between having the available funds to buy a new home and cutting down on the interim period between homes.

As with any major purchase, it pays to be informed prior to making any decisions. As experienced buyers already know, buying a home is a complicated process, so it’s important to start at the beginning and thoroughly understand each step. Whether you’re buying your first home or your third, make sure you have the necessary financial resources and have explored all your options before you purchase a new home.
If you’re a first-time buyer, you should weigh the pros and cons of homeownership versus renting. There are many advantages and disadvantages to consider. For example, renters have the freedom of mobility if they choose to move, but their monthly rent checks do not establish long-term equity or produce any other benefits. And while homeowners’ mortgage payments accumulate equity, these payments are generally higher than rent payments and come with the responsibility to manage the care and upkeep of the property.
Both new and experienced buyers have their own sets of financial considerations when it comes to buying a home. Move-up buyers should evaluate their financial situation to ensure they’re prepared to meet the higher mortgage payments involved with relocating. Likewise, first-time buyers should determine if monthly mortgage payments fit in their budgets. In addition, you’ll need to be prepared to cover the downpayment and closing costs. And, you should consider whether you meet the basic criteria to qualify for a mortgage; lenders prefer that applicants offer a stable job history and a good credit record.

Buying a home is one of the biggest decisions-both financially and emotionally- you will make in your lifetime. If you’re a first-buyer, you’re probably thrilled about making the jump from apartment renting to owning your own house. While you’re excited, however, you also may be a bit overwhelmed by the procedures involved. Relocating or move-up buyers have the advantage of past experience, but still might need a refresher course on the intricacies of the process.
The buying process involves several step, from finding a Realtor to making an offer to closing the deal. Whether you’re a first-time or experienced buyer.